The penetration rate remains stagnant, even as seniors housing becomes a more accepted asset class and more prospective residents understand its value. What’s the solution?
By Jeff Shaw
The seniors housing industry is currently experiencing something of a metrics renaissance. After surviving the brutal blow that was the COVID-19 pandemic, most of the base numbers have trended positive:
• There have been 11 consecutive quarters of occupancy growth.
• Rental rates saw dramatic increases over the past few years, with reportedly little pushback from residents.
• New construction has remained low, suggesting that occupancy growth will continue for the near future.
• The baby boomers are gradually aging into seniors housing, bringing continued demand and occupancy increases for the foreseeable future. The percentage of the U.S. population over age 65 grew from 12.4 percent in 2000 to 16 percent in 2018, and will be over 20 percent by 2029.
But there’s one number that has stubbornly stayed put: The percentage of prospective customers who are actual customers, commonly known as a penetration rate. In seniors housing this is generally considered to be people over age 75 within a market area.
Although the number is difficult to pin down given that it’s talking about a range of ages and acuities, as well as covering the entire country, the conventional wisdom of industry experts is that the penetration rate is about 10 percent and has held fairly constant for many years.
“The vast majority of age- and income-
qualified senior adults, the prospective customers that the senior living industry has targeted, say ‘no’ [to moving into our properties],” notes David Smith. The industry luminary wears many hats, including as principal at seniors housing property The Gatesworth Communities, founder of consulting firm One On One Services, co-founder of seniors housing software company Sherpa CRM and author of seniors housing sales book “It’s About Time!”.
The demographics look quite promising for seniors housing, as the oldest of the baby boom generation turn 78 this year. Every day 10,000 people reach the 75-and-older demographic. But imagine how promising they could be if we were able to capture an even larger portion of that demographic wave.
Selling a ‘life change’ isn’t easy
“On average, it is true that the penetration rate for all senior living product types has remained virtually stagnant for years,” says Malissa Illiano, vice president of market research for senior living marketing agency SageAge. “One of the predominant factors pertaining to penetration rate is the number of alternative options available to seniors.”
Those alternatives include home care offerings, intergenerational households (e.g. living with children and grandchildren), and technology that allows seniors to live at home longer.
“With innovations on the rise and new products/offering types being developed, it is difficult for senior living to capture additional market share,” adds Illiano.
Julie Podewitz, CEO and founder of senior living marketing firm Grow Your Occupancy, says there are innumerable excuses seniors may rely on to stay home: “That’s a nursing home. I’m not sick enough. I’m not old enough.” But they all boil down to one factor: Fear.
“Moving is awful in the best of circumstances,” says Podewitz. “Now we’re asking them to leave when they’re frail and lonely and have a bunch of problems?”
She also notes that marketing tactics have not kept up with the times — that most are doing “the same thing. It’s simply not good enough.”
“Our messaging has been the same for 20 years. Our sales processes are weak. We don’t give people reasons to engage.”
Smith agrees that sales approaches in the senior living industry are outdated, and that the enormity of this decision for a senior cannot be overstated.
“What we are really trying to sell is a life change. It’s not a small change but a fundamental redefinition of the self. Beneath the façade of choosing an apartment, this is a complex and emotionally charged proposition.”
Margaret Wylde, founder and principal of seniors housing research firm ProMatura, says senior living marketing often focuses on age and acuity — “conjuring up an image that the individual does not align with.”
For example, an active 75-year-old may still play tennis, walk five miles a day and work voluntarily for the mental stimulation and socialization. Despite being prime targets for active adult or independent living, seniors like this don’t see themselves that way.
Other objections to seniors housing that elderly people may have, according to Wylde, include:
• The price may deter many who own their home, whose current housing expenses are solely utilities, upkeep and taxes.
• Some do not want to move to a residential community with people they do not know.
• Many do not want to live in a community of “old people.”
• Some may have the sense that this is the place they will go to die.
• Some may sense a loss of the life they’ve lived. They may think that they will lose the lifestyle to which they are accustomed. They will have to live according to the rules and adjust to the daily schedule of the community.
• Others may fear having to downsize and divest themselves of cherished possessions, such as paintings or other works of art, or family heirlooms that may have been in the family for generations.
• The COVID pandemic required isolation from others, so many used grocery or meal delivery, telehealth and purchased items online instead of going to a store. Many may believe they can obtain the help they need by employing a private caregivers and remaining in their home. Essentially, the pandemic for many was a lesson in self-sufficiency.
Wylde is able to understand this struggle on a deeper level because she’s lived through it. She lost her husband recently and, despite being an expert on seniors housing, elected to have him age at home, even going so far as to install an elevator in her home to assist with mobility.
“When I was told that there was nothing that could be done that could improve my husband’s health, I was determined to ensure he could remain at home,” says Wylde. “Before he died, he said he was so happy that we had the elevator because it let him stay home. The home that you have built and enjoyed for 40 years is your sanctuary. Feeling at home is important.”
How do we fix it?
The other side of the coin, Wylde goes on to note, is that seniors housing communities can make themselves valuable by becoming a new home for their residents.
“In many of the consumer research studies ProMatura has completed, we asked the residents why they chose the community they were living in. The more common answers were because some of their friends lived there, or the community was located in the area near their home,” says Wylde. “Another answer we have obtained less often was, ‘because when I walked in, I felt at home immediately.’”
Smith lauds what he calls prospect-centered selling (PCS), a method whereby the sales and marketing team focuses on the potential resident’s needs and “readiness journey” rather than the building and its amenities.
“It works by openly and respectfully helping prospects make a buying decision, rather than waiting to ‘sell’ high-acuity prospects when they fall into a crisis,” says Smith. “With PCS, sales counselors spend more time with fewer prospects.”
“Higher functioning prospects need help overcoming emotional resistance,” adds Smith. “That requires a sales counselor to invest the time needed to make an empathic connection, engage in purposeful questioning and achieve multiple advances. Selling time represents a level of engagement unlike most other sales performance metrics, which look to the quantity of new leads and the amount of call-out and tour activity.”
Podewitz agrees that the marketing techniques for seniors housing need an update — she notes that some recent secret shopper results made her “want to cry” because of how many missed opportunities she read.
“Think about it from the perspective of a customer who knows nothing. What do they have to gain? We really need to speak in different terms as far as how we’re presenting it.”
She also says the industry needs more evangelists who love and believe in seniors housing and are willing to share that love to anyone who will listen.
But it’s not just about sales approaches. Communities can help themselves by offering alternative models, such as memberships for those that want to take advantage of a community’s amenities but aren’t ready to move in yet.
“You can join in, come in for dinner, come for the events, come for the exercise class, be part of the community,” says Podewitz. “That will connect a greater number of prospects to the community until they’re ready to move.”
Developers should be attuned to what seniors leave behind when they leave their home, which means developers should consider building bigger apartments, more storage and closets and more common spaces.
“Developers don’t want to hear that because it’s not revenue-generating space, but you’ve got to have reasons for people to move in,” says Podewitz.
Even changing the employee structure can help. Podewitz suggests having executive directors focus exclusively on the financial side of the business and hire a “true resident concierge” to handle resident concerns so that they “will feel seen and heard.”
“We’re asking one person — the executive director — to do everything. It’s an impossible job.”
Illiano says that the industry as a whole needs to do a better job informing prospective residents of the value proposition of seniors housing.
“Education is key,” she says. “We have hosted senior living focus groups all across the country, and it never ceases to amaze me how much people do not know or understand about senior living as a whole.
“Whether it’s confusion about products or pricing structures, misperceptions about offerings and services, or simply just a complete lack of knowledge, there are so many seniors out there who just need to be educated about senior living options. I’ve seen firsthand that once that happens, perceptions change and interest increases.”
Regardless of how it’s achieved, capturing even a small piece of that 90 percent of the market that doesn’t enter seniors housing could have extreme effects on the industry, notes Illiano.
Increasing the penetration rate could have an exponential effect on market demand. For example, with independent living alone, the industry standard capture rate is typically anywhere between just 3 percent and 5 percent.
“If you’re looking at a net target market of 10,000 qualified households, each of those percentage points represents the need for 100 more beds,” says Illiano. “So, even if you could increase that capture rate by a few percentage points, you’re talking a couple hundred more units that could be supported in a market of that size.”
Podewitz offers a final thought on the challenge ahead. “If we have even a modicum of a chance to attract the Silver Tsunami, we’ve got to give them what they’re looking for — from both a resident engagement and care/wellness model.”